CHAPTER 2

We now live in a “whitewater world” where change is constant and success is no longer dependent on building tightly controlled, durable institutions….

CHAPTER II - Navigating a Whitewater World

The stakes are rarely as high or as urgent for business enterprises as they were for JSOC. One powerful advantage McChrystal had in effecting change was the exigency of battle. As he explained, when a military unit is the target of incoming artillery fire, the only alternative is to move to somewhere else. Exactly where they move is less important than “not staying here.”

To be sure, there are clear indicators that American businesses have “lost the initiative” in the 21st century. According to Deloitte’s Shift Index, over the past 50 years, the return on assets (ROA) of American companies has gone down by 75 percent, and the decline shows no sign of leveling off. During the same time period, the average tenure of a company in the Fortune 500 fell from 75 years to 15 years. Charlie Firestone, Executive Director of the Aspen Institute Communications and Society Program, added that public confidence in large corporations is extremely low, just slightly above that of Congress, which is at the bottom of the list. He also cited the thesis of Moisés Naím and his recent book, The End of Power, that in the current volatile environment, power is “easier to gain, more difficult to use and harder to keep” than in the past.1

In the face of digital disruption, corporations and other organizations need to rethink their approach for today’s economic realities. Gaurav Tewari, Managing Director of Citi Ventures, acknowledged that “it can sometimes be hard for a 200 year old institution to adapt to a new way of operating” (Citigroup, the parent of Citi Ventures, traces its origin back to the founding of the City Bank of New York in 1812). One way to pursue innovation is to seek out new sources of value externally as well as internally and includes the possibility of investing in, and pursuing partnerships with, startups. In order to invest, however, Citi must be convinced that an idea can scale up sufficiently to be worth pursuing.

The most formidable obstacle to working in a new way, according to Tewari, is the need to “unlearn” old ways. For example, traditional retail branches have historically defined the public face of a bank. As customers perform an increasingly large portion of their banking transactions through digital channels, the branch of the future might look very different. In response, Citi is starting to explore how to address “higher order” customer needs. A source of inspiration has been the success of ride-sharing startups, which have prospered by recognizing that the traditional taxi industry was underserving the needs of customers for transportation that is convenient, safe and predictable. Citi is attempting to find comparable untapped opportunities in the realm of financial services.

Another financial giant, BNY Mellon, is nearly as large as Citigroup in terms of assets under management and has an even longer pedigree: the Bank of New York, founded in 1784 by Alexander Hamilton, is the oldest bank in the U.S. and the 20th oldest in the world. Mellon Financial is not quite as old but is still quite venerable, having been established in Pittsburgh in 1869 by members of the Mellon Family. Caroline O’Connell, Chief Marketing Officer for Investment Services at BNY Mellon, noted that despite these long lineages, the combination of these two institutions, BNY Mellon, is roughly a decade old and includes an amalgam of acquisitions. One of the firm’s biggest challenges is to integrate many different “operating platforms” that it has inherited in order to reach a viable level of scalable efficiency. The firm is highly focused on delivering a single platform strategy, called NEXEN, to achieve scale and transform the business model.

If achieving scalable learning is important for survival, can an organization pursue both goals at the same time? Is it possible to begin to experiment with new ways of working “at the fringes,” even while striving to consolidate the core of the company? O’Connell also raised the possibility that there are certain types of institutions like banks or utilities that people depend on to be efficient and reliable, and wondered how realistic it is for these institutions to seek constant change.

It is not just institutions that have an innate tendency to resist change; so do individuals. Peter Marx, Executive Director at GE Digital and former Chief Technology Officer of the City of Los Angeles, pointed to the importance to workers of being employed as “the elephant in the room.” For many workers, the concept of change is “synonymous with, ‘Will I have a job?’” The reality is that trends like outsourcing and the evolution of technology can lead to the elimination of jobs. Marx cited the example of film editors moving from editing film stock to using computers as being an early example. Not everyone may have the desire or the capacity to adapt to change, and particularly to constant change.

Moving from Efficiency to LearningWhat does it take for an organization to transform itself in a fundamental way, and particularly to shift from pursuing efficiency to embracing continuous learning and the constant change that it implies?

The need to respond to a crisis is one good motivator for change. That certainly was the case in 2003 for General McChrystal, who made it clear to his troops that if they continued to operate in the way they traditionally had, they faced defeat by an enemy that was following a different set of rules. Bringing about deep change like this almost always requires a strong, clear-sighted leader who perceives the need to change that others may not see and has the skill and determination to make it happen.

One necessary ingredient for bringing about change is a willingness to try something new and unproven and be prepared for it to fail. As Marc Spiegler, Global Director of Art Basel, noted, if you want to embrace learning, you have got to accept failure. Yet in many organizations and cultures, failure is not an option.

One field where failure is virtually unavoidable and change is becoming more urgent is medicine. Kelvin Westbrook, President and Chief Executive Officer of KRW Advisors and Chairman of BJC Healthcare (a multibillion dollar nonprofit that operates 15 hospitals and numerous clinics in St. Louis, Missouri), stated that doctors have begun to accept that they are not infallible and are learning to make use of data that gives them a better understanding of what is working and what is not. He cited the example of two surgeons who performed similar operations, one using a surgical set that cost $10,000, while the other used a $5,000 set. After data on multiple operations showed that there were no material differences in outcomes, there was a change in practice that reduced overall costs without sacrificing quality.

Another field where greater availability of data is having an impact is policing. According to Peter Marx, the use of body cameras by police officers is bringing greater accountability for police actions. Smart phones have also helped to change the paradigm of policing: while cops on the beat have traditionally had to operate with very little information, they now have the ability to be much better informed. By tapping into social networks for law enforcement, they can get a more thorough contextual awareness that can help them do their jobs better.

It is also true that the use of smartphones by civilian bystanders to record police actions is bringing more pressure on officers. Some agencies, rather than responding defensively, are recognizing the value of greater transparency. In June 2016, for example, when a police shooting took place in Fresno, California, the department voluntarily released the body camera video of the incident without waiting for a court order to do so. The result of these dramatic changes, Marx noted, is to “instill equal amounts of optimism and awareness among cops.” They may not worry about keeping their jobs (robocops are still in the distant future), but they do feel that they are potentially being watched by millions of people as they attempt to carry out their duties.

It is noteworthy that some of the most compelling examples of change are coming from three fields—the military, medicine and policing—where the consequences of failure are particularly stark: literally a matter of life and death. General McChrystal noted that even though the military is based on a ranked hierarchy, which is based on an assumption of competence, in an environment in which information flows quickly, everyone will know when a mistake is made. As a result, a wise leader will acknowledge that he got something wrong, describe what he was trying to accomplish, then ask his team to work together to “figure out how to do it better.”

Alaina Harkness, a Fellow at the Project on 21st Century City Governance at the Brookings Institution, responded by suggesting that large systems like the military or a big corporation are resilient when they are able to respond appropriately to failures on an individual level. Failing faster and smaller at the process level can enable an organization to learn from mistakes and continue to move ahead.

One way to minimize the impact of mistakes while maximizing opportunities to learn from them is to run a series of smaller experiments rather than trying to engineer large-scale change. Peter Hirshberg, Chairman of the City Innovate Foundation, cited the effort by the City of San Francisco to “Redo Market Street,” one of the city’s major thoroughfares that has long suffered from blight. Rather than attempting to create a single grand plan for Market Street, the city’s planning department invited the public to submit ideas that could be tried out. In 2014, with support from the Knight Foundation, the city held a Market Street Prototyping Festival that attracted approximately 50 different proposals for improving public spaces on the street with winning entries receiving small grants to build and test their ideas.

Ultimately, making a big shift is a matter of mindset, of seeing learning not as “something that one has to do” but as an adventure that generates new knowledge, new ideas and better ways of doing things. According to Hagel and Brown, the desire to learn is innate in everyone, but too often both schools and other large institutions quell that desire. Students (and workers) are expected to listen to the instructor (boss), follow instructions, and pass the test (do their job), rather than nurturing the passion of the explorer. In a pervasive learning environment, students are not expected to study a book or a manual, but to work together to solve problems. Shifting to this new paradigm requires a new form of leadership: instead of being the person who has all the answers, a leader in a learning environment is the person who has the most powerful questions. (For more on the challenge of leadership, see the final section of this report.)

1 Moisés Naím, The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being In Charge Isn’t What It Used to Be (The Free Press, 2014).

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Words from Charlie: Foreword to the 2016 Roundtable on Institutional Innovation Report

CHAPTER I: The Exponential Shift

CHAPTER II: Navigating a Whitewater World

CHAPTER III: Designing Organizations for Exponential Performance: Reports from the Field